When buying or selling your home, the best thing you can do is hire a good real estate agent who can help you through the process. It also helps to know some of the basic terminologies used in real estate so you can speak and understand their language. Selling or Buying a home could be frustrating if you’ve never done it before and don’t have the right information.
Here are some basic real estate terms that you need to know. The following terms are not legal and complete definitions and are meant to provide general guidelines only.
Contract refers to a legally binding agreement between the buyer and the seller. In real estate, a Contract of Sale will be deemed valid if there is an offer, an acceptance, competent parties, consideration, legal purpose, written documentation, description of the property, and signatures of principals.
Counter offer refers to the new offer made by either the buyer or seller when rejecting a previous offer. In the case of a seller generating a counter offer, the counter offer will typically indicate that the seller has accepted the buyer’s offer subject to some particulars. These may include total consideration (generally a higher price), increasing the size of the earnest money deposit, refusal to pay for certain reports fees, changing service providers, altering closing date, and modifying contingency time frames.
Earnest money deposit
As a seller, you want to ensure that a buyer is serious about purchasing your property. An earnest money deposit is the deposit a buyer makes at the time of submitting an offer to show their true intent to purchase. It is sometimes called a binder or good faith deposit. When the transaction is finalized, the funds are put toward the buyer’s down payment. However, if the deal falls through, the buyer may not be able to reclaim the deposit.
The market value of a property is the price it might be expected to bring if offered for sale in a fair market. This is usually in relation to the current real estate market. Market value is also the price at which a particular house, in its current condition, will sell for within 30 to 90 days.
A seller’s market is a situation where the demand is larger than the supply. This means there are more buyers than homes for sale. Since supply is less than the demand, several buyers compete to buy properties, which in turn drives up the price.
A buyer’s market is a situation where there are more homes for sale than there are buyers. Since supply exceeds demand, buyers have advantage over sellers in price negotiations. Sometimes, prices drop over time as homeowners become more eager to sell their property.
Multiple Listing Service
A multiple listing service or MLS refers to a marketing database set up by a group of cooperating real estate brokers providing property for sale information. It is used by real estate brokers who agree to share their listing agreements with one another to locate ready, willing and able buyers for properties more quickly than they could on their own.
A pre-approval refers to a written statement from a lender. It states the lender’s preliminary determination that a borrower will qualify for a particular loan amount under the lender’s guidelines. It also contains the maximum amount that the lender is willing to lend. The pre-approval process involves a thorough look into the income and expenses of the borrower. It also takes into consideration the borrower’s credit report and score. Getting pre-approved demonstrates to real estate agents and sellers that a buyer is a qualified, serious borrower.
An appraisal is the evaluation of a property by a licensed appraiser on its price based on previous sales of similar properties. The appraised value is used by a bank to determine the lending limit on a given property. A seller may also have a property appraised to determine the offering price during a sale.
Closing costs are the expenses incurred in the purchase and sale of real property paid at the time of settlement or closing. Some examples of closing costs are title insurance, attorney fees, appraisal fees, recording fees and taxes.
The title of a property is the evidence or documentation that an owner is in lawful possession of the property, such as a property deed.
Title insurance is an insurance policy protecting the insured from financial loss caused by a defect or question about the title to real property.
Title search is a process that examines local public records, laws and related court decisions to determine if any other parties have valid claims against the subject property (such as past due taxes, judgments or mechanics’ liens). It also discloses past and current facts about the subject property’s ownership.